Randomly increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.

Question

Quizplus · Accepted Answer

Unsystematic risk is specific to individual securities and can be reduced by diversification, whereas systematic risk is inherent in the overall market or economy and cannot be mitigated by diversification. Therefore, randomly increasing the number of securities in a portfolio can help to reduce unsystematic risk, but it will not have an impact on systematic risk.

Randomly Increasing the Number of Securities in a Portfolio Reduces